PA 11-37—sHB 6299

General Law Committee

AN ACT CONCERNING CHAIN STORE CIGARETTE DISTRIBUTORS

SUMMARY: This act allows certain franchisors to be licensed as cigarette distributors and to qualify as chain stores for purposes of the cigarette tax and minimum mark-up laws. Under prior law, franchisors were licensed as cigarette dealers and subject to a higher cigarette tax and minimum mark-ups.

EFFECTIVE DATE: July 1, 2011

DISTRIBUTOR

By law, a person who operates five or more retail stores and buys cigarettes at wholesale exclusively for sale to those stores is licensed as a distributor for cigarette tax purposes. The act allows a franchisor to be licensed as a distributor if it (1) franchises at least five retail stores, (2) buys cigarettes at wholesale exclusively for those stores, and (3) splits the gross profits generated by the stores.

CHAIN STORE

For purposes of the cigarette minimum mark-up requirements, the act also extends the definition of a “chain store” to franchisors of five or more retail stores. Distributors who sell to chain stores have lower minimum mark-up requirements on those sales than on sales to dealers.

By defining qualifying franchisors as chain stores, the act exempts them, when applying for a distributor's license, from having to provide the revenue services commissioner with three affidavits from recognized cigarette manufacturers that the manufacturers intend to supply them with cigarettes. The act also eliminates the requirement that chain stores be under common ownership and control.

LICENSE FEE

Finally, the act extends existing annual distributor's license fees to qualifying franchisors. These fees are $315 for those with fewer than 15 stores, $625 for those with 15 to 24 stores, and $1,250 for those with 25 or more stores. Under prior law, franchisors paid $50 annually for a dealer's license.

BACKGROUND

Cigarette Tax

Cigarette distributors and dealers pay the tax by buying tax stamps from the Department of Revenue Services. They must affix a stamp to each cigarette pack as proof of payment. Distributors get a 1% discount on stamps; dealers must pay face value (CGS 12-298).

Minimum Mark-up

The law requires different types of cigarette sellers to mark up their cigarettes by different percentages representing their cost of doing business. It prohibits selling cigarettes below cost. At a minimum, sellers must charge their basic cost plus a percentage representing their cost of doing business computed as it would be for federal income tax purposes.

OLR TRACKING: DC: SP: PF: RO